Strong Job Gains

Oil prices continued to drive most of the movement in mortgage markets again this week, and increased optimism for a reduction in hostilities in the Middle East was positive for bonds. However, stronger than expected economic data offset some of the gains, and mortgage rates ended the week only a little lower.

Looking at the other major components of the report, the unemployment rate unexpectedly fell from 4.4% to 4.3%. Average hourly earnings, an indicator of wage growth, were 3.5% higher than a year ago, down from an annual rate of 3.8% last month and the lowest level since May 2021.

Another significant economic report released this week from the Institute of Supply Management also exceeded expectations. The ISM national manufacturing sector index was 52.7, above the consensus forecast of 52.0 and the highest level since 2022. Readings above 50 indicate an expansion in the sector and below 50 a contraction. After spending the final ten months of 2025 below 50, the manufacturing sector has surpassed that level for the first three months of this year. While future tariff policies are more uncertain after the Supreme Court ruling in February, the higher tariffs on foreign goods imposed last year may be providing a lift to domestic manufacturing companies.

Consumer spending accounts for over two-thirds of U.S. economic activity, so the monthly Retail Sales report is a key measure of the health of the economy. Delayed by the government shutdown, the most recent data revealed that retail sales in February rose 0.6% from January, which was a little above expectations and the largest monthly increase since July.

Looking ahead, attention will remain fixed on the conflict in the Middle East. Investors also will monitor comments from Fed officials about future monetary policy. For economic data, the ISM national services sector index will come out on Monday. After that, two big inflation reports will be released in the same week due to disruptions from the government shutdown. The PCE price index, the inflation indicator favored by the Fed, will come out on Thursday. The Consumer Price Index (CPI), a widely followed monthly inflation indicator that looks at the price changes for a broad range of goods and services, will be released on Friday.